FINfacts™ XXIV – No. 154 | February 13, 2019

MARKET RATES
Prime Rate 5.50
1 Month LIBOR 2.49
6 Month LIBOR 2.74
5 Yr Swap 2.61
10 Yr Swap 2.73
5 Yr US Treasury 2.53
10 Yr US Treasury 2.71
30 Yr US Treasury 3.02

RECENT TRANSACTIONS
$46,000,000 Non-Recourse Acquisition & Renovation Financing a 4-Property Apartment Portfolio in the DFW Metroplex

Rate: L+350-400 (Property-Dependent)
Term: 3 Years + Two, 1-Year Extensions
Amortization: Interest Only
LTC: 80% LTC
Prepayment: 18 Months Yield Maintenance
Guarantee: Non-Recourse

Transaction Description:
George Smith Partners successfully arranged $46,000,000 of non-recourse, bridge financing to acquire and renovate a 4-property multifamily portfolio, consisting of 692-units, in the Dallas-Fort Worth Metroplex. Although the Properties were well occupied (97%), rents were below market because the Seller self-managed and the Property lacked recent common area renovations. The units were well maintained but dated and will benefit from Sponsors renovation plan.

Challenges:
This financing was unique because it had four different multifamily properties within one single portfolio. While there were efficiencies in working with one lender, each property was evaluated on its own merits and diligence had to be collected accordingly. We marketed the attributes of each Property and the sub-markets. Two of the properties are located in Irving, one in Grand Prairie and one near Fort Worth. Each market has different economic demand drivers (example: Irving is home to several major corporate headquarters including Exxon and McKeeson). Moreover, the Lender required an minimum capital investment of $6000 per unit (slightly higher than the Sponsor’s original budget) and GSP worked with the Lender to coordinate the information for securitization. There was a timing aspect in order to securitize the portfolio properly.

Solutions:
George Smith Partners worked with the Sponsor to increase their renovation budget and worked with the Lender to increase leverage accordingly. This retained the Sponsors original equity participation and should result in better returns. We closed the four loans nearly simultaneously (3 loans closed on a single day).

Advisors

Steve Bram
Principal/Co-Founder
David R. Pascale, Jr.
Senior Vice President
Patrick O’Donnell
Vice President

$10,000,000 Medical Office Refinance with Low Rate – 15 Year fixed Financing – Santa Monica

Rate: Fixed 4.82%
Term: 15 Years
Amortization: 30 years with interest only for five years
LTV: Under 65%
DCR: 1.25
Guarantee: Non-Recourse
Prepayment Penalty: Stepdown
Lender Fee: None

Transaction Description:
George Smith Partners successfully completed a $10,000,000 refinance of a single-tenant medical office with an NNN lease with 14 years remaining. GSP arranged this 15 year, fixed rate loan with a rate of 4.82%. The first 5 years are interest only and then the loan converts to a 30 year amortization. The loan also features a step-down prepayment instead of typical yield maintenance.

Challenges:
The first challenge dealt with the remaining lease term. It is customary for loan terms especially on non-recourse loans to be at least 2 years shorter than the lease term on single tenant buildings. In this case, 14 years remain on the single tenant lease and the Sponsor wanted a 15-year term.

The second challenge was that the lease was to an entity that was a partnership between a local doctors group and an investment grade hospital without a guarantee from either group.

Solutions:
Because the building was well located in a high demand market, GSP did extensive market research and looked at the value from two different perspectives. First we looked at it from the perspective of the Tenant staying in the building and secondly we looked at it from the perspective of the Tenant moving at the end of the lease term. We proved it would be very hard and unlikely for the Tenant to relocate in Santa Monica. Using GSP’s relationships, market experience and medical office expertise, we were able to identify a lender who understood our view of the market and accepted it. The Lender was willing to do a 15 year fixed rate financing beyond the term of the lease. It was non-recourse to the Sponsor and had no guarantee from the Tenant.

Advisors

Bryan Shaffer
Principal/Managing Director
Max Lehrman
Vice President
Meron M. E. Amar
Analyst
Ruben Bohbot
Assistant Vice President

$8,025,000 Cash Out Refinance for a Portfolio of Multifamily Units in Los Angeles; Sized to 1.15 DCR on an Actual Mortgage Constant

Rate: 4.61% fixed for 7 years, then floating at 6M LIBOR + 2.75%
Term: 15 years
Amortization: 3 years Interest Only followed by 30 year amortization
Prepayment Penalty: 5,4,3,2,1,0
LTV: 65%
DCR: 1.15x

Transaction Description:

GSP secured $8,025,000 in proceeds for the cash out refinance of two adjacent multifamily properties totaling 59 units in Los Angeles. The loan is fixed for the first 7 years and offers 3 years of interest only payments. Due to market conditions at the time of application, the Borrower was able to fix the rate for a 7 year term while paying almost no premium compared to a 5 year term. Since acquisition, the Borrower has renovated and re-leased a significant number of units and added utility reimbursements. The selected Lender was able to give the Borrower maximum credit for the higher income at the Property. Final underwritten cash flow allowed for an increase in proceeds compared to the original term sheet. The loan closed in about 40 days despite the intervening holidays.

Advisors

Shahin Yazdi
Principal/Managing Director
Jonathan Lee
Principal/Managing Director
David Stepanchak
Senior Vice President
Matthew Kirisits
Vice President
Olga Alworth
Senior Vice President
Samuel Sarshar
Assistant Vice President

Picture
HOT MONEY
Nationwide Non-Recourse Bridge Financing with No Prepayment Penalties

George Smith Partners is placing non-recourse financing for reposition transactions from $3,000,000 to $15,000,000 on light to heavy value-added properties nationwide. This institutional lender will finance Industrial, Retail, Office, Multifamily, Self-Storage, Student Housing and Medical Office. Lender will fund up to 80% of purchase and 100% of good news dollars with terms up to three years for transitional assets with no prepayment penalties and no LIBOR cap required.

More Hot Money ›

SPECIAL ANNOUNCEMENT

Congratulations to Gary M. Tenzer on celebrating his 40th anniversary with GSP!


2019 MBA CREF – BLURRED LINES

The GSP team attended the annual MBA CREF/Multifamily Housing Convention & Expo – Mortgage Banker’s Association at the Manchester Grand Hyatt in San Diego. Our team met with a variety of lenders from across the country representing the full spectrum of the capital stack.

The overriding narrative has not changed much from last year. Two common themes are: 1) too much capital chasing not enough deals and 2) it’s a good environment for sponsors with deals that make sense. With properties still trading at historically low cap rates, equity investors need to be increasingly selective and target properties with more value-add available for skilled operators. At the same time, debt financing for these types of transactions is more available than ever.

Several funds mentioned their need to deploy capital over the next 1-2 quarters in order to meet the target returns of their investors. As a result, lenders are increasingly willing to “listen to a good story” and go “outside the box” for strong Sponsors with proven track records. Underwriting standards have not declined, but lenders are willing to be more creative to win business. This means they can offer more advantageous structures for the borrower, loan in secondary/tertiary markets, or lower their fees.

Blurred Lines: Traditional lender “roles” are being redefined. CMBS lenders spoke about a more “hands-on” involvement in loan servicing, thereby acting like Life Companies. Life Companies are entering the bridge lending space through direct lending or strategic alliances with existing bridge lenders (such as debt funds). More and more new debt funds are starting bridge lending programs along with mezzanine/preferred equity programs. The sheer volume of capital in the bridge space combined with huge demand for CLO paper (floating rate securitizations) is driving down spreads. This is causing bridge lenders to seek out lower priced capital or for the fund investors to accept lower returns. Banks are competing on spread for non-recourse “light” bridge loans for strong sponsors.

“Bridge to bridge” lending is abundant as renovation or construction projects with maturing loans often need a little more time and/or funds to stabilize. In this environment, everything costs more and takes longer, especially with a tight labor market. Many bridge lenders are comfortable with taking out a construction lender and providing time and sometimes additional funding. Completing lease-up is a good “story” for the new bridge lender as construction risk has been eliminated. As always, the lender will need to believe in the location, product, sponsor and business plan.

David Pascale, Senior Vice President
Matthew Kirisits, Vice President
Huber Bongolan, Assistant Vice President

 

If you have an inquiry regarding George Smith Partners’ commercial real estate financing, please contact your GSP representative or Todd August, Chief Operating Officer (310) 867-2995 or TAugust@GSPartners.com


WWW.GSPARTNERS.COM

Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
Office 310.557.8336
Fax 310.557.1276
Email finfacts@finfacts.net
© 1999 - 2019 George Smith Partners, Inc. DRE # 00822654 FINfacts™ is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
Hi, just a reminder that you're receiving this email because you have expressed an interest in George Smith Partners. Don't forget to add finfacts@finfacts.net to your address book so we'll be sure to land in your inbox!

You may unsubscribe if you no longer wish to receive our emails.